Hi Everyone
I will get my DA any day now for a 6 unit development on the northside of Brisbane. This is my first commercial development, having completed a smaller 4 unit development recently.
In relation to this deal, the numbers stack up to a good return. So now comes the fun part of getting the money!!!
I have been told that banks may do 70% of GRV minus GST at about 2% over mortgage rates. This would be good. However, I understand a bank would be looking at presales and I am not that keen on doing presales.
I have been told a non bank lender might do 60 to 65% of GCR minus GST at 3% to 5% over mortgage rates but would probably not require presales.
Does this sound right?
Also just looking to confirm my understanding is correct, in that the lender would pay out the mortgage over the lot and take first mortgage over the lot? At the moment the loan over the lot is a resi loan on good rates.
It seems to me that if a party only wants to lend 60% of GRV and they get first mortgage over the lot then they are doing pretty well risk wise, in that the value of the lot itself is worth a third of what they are lending. Is that the position? It just seems a bit rough for the old developer. Would a lender take a second mortgage over the land and lend say 40 to 50% of GRV?
In regard to serviceability, using our resi CBA calculator we should be able to service the loan if you count the proposed rents. The lender will count the proposed rents right? Is this the case even if the intention is to sell them? Should we tell the bank that we intend to keep them so that they will count the rent (BTW, I should note that we could fund the interest during the selling period out of savings).
Finally, does anyone have any current experience with presale of 2 bed units for around $375k within a 12 km radius of the CBD? Are they moving?
Thanks for your time.
Cheers
Ben
Oh yeah, also, is there any chance of capitalisation of the interest? Or is that a pipedream?
Thanks for your time.
Ben
1. 70% GRV with 2% over mortgage rate and some pre-sales sounds about right,,, you only need pre-sales when you go over the standard 60% GRV OR you personal lack asset and the bank thinks there is a chance they may not be able to recoup all their cost and fees back.
2. Yes lender will pay out the mortgage and take over all the security + register the new deeds and title should a new one be issued etc.
3. Lenders will never take risk on any development, especially if they have NOT dealt with you in the past and don’t know your history…so yes it may be a bit rough for the developers- but since it’s your project you should be happy to wear most of the risk.
4. Serviceability are NOT done using the normal residential calculators, especially with lenders that provide GRV construction loans.
Things to consider
– Rent can be accepted but it will be discounted based on the lender, it ranges from 50-80%
– sensitivity assessment rate is higher then residential
– Loan terms is shorter
– Interest can be capped
– If your intention is to sell most GRV lenders will NOT allow rent to be included…5. Yes Interest can be capped
6. Teling the lender if you sell or not will depend on your file, hard to say without knowing your financial strenght and situation….also it’s good to compare the rate and LVR but also compare the exit fee too sell the units within 12 month of development- lenders may have a2-3 month interest penalty for selling rather then keeping the units.
2-3 month worth of interest is like $10-20k ( depending on loan amount) and this can add quite a bit too your profit given your only probably taken up this loan for 12-16 month only.
Regards
Michael;lMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
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